The continuous cropping barrier is an important factor leading to the decline of watermelon quality and yield. In this study, we focused on a bio-organic fertilizer prepared with one bacterial strain, Bacillus sp. XG-1, to prevent the occurrence of the continuous cropping barrier. The strain XG-1 was isolated from watermelon rhizosphere soil, and promoted the growth of watermelon by producing phytase (0.19 U/mL), indole-3-acetic acid (IAA, 7.31 mg/L), and gibberellins (GA3, 2.47 mg/L). In addition, the strain also possessed a strong antagonistic effect against the pathogen Fusarium oxysporum f. sp. niveum (Fon) by inhibiting conidia germination with an inhibition ratio of 85.3% and mycelium growth. The bio-organic fertilizer fermented by XG-1, based on cow manure compost and rapeseed meal (85:15, w/w) under optimal conditions, was mixed in soil (watermelon had been planted for two consecutive years). After the cultivation of watermelon for 50 d, a higher density of XG-1 (9.79 × 105 colony-forming units (CFU)/g) and one order of magnitude lower of Fon (1.29 × 103 copies/g) were detected in the rhizosphere soil compared with soils without bio-organic fertilizer (7.59 × 104 copies/g for Fon), leading to an 86.4% control efficiency of watermelon caused by Fusarium wilt. The application of bio-organic fertilizer enriched soil nutrients, including the organic matter (13.2%), total nitrogen (13.9%), total phosphorus (20.5%), and total potassium (3.77%), adjusted the soil pH from 6.69 to 7.01, and significantly improved the watermelon growth in terms of the seedling height, root length, fresh weight of seedling and root with increase of 78.8%, 72.2%, 84.6%, and 96.4%, respectively. This study regarded the watermelon continuous cropping soil as the research point, and focused on inhibiting Fon, regulating soil properties and enhancing watermelon growth to eliminate the continuous cropping barrier through a combination of compost and functional strains, demonstrating the potential application value in watermelon production.